As the new year rolls in, we begin to wonder what one of our favorite topics, the GTHA and GGH Housing Market holds in store for us. We turn to our experts here at Empire Communities to polish off their crystal ball and give us some answers. Today, Gary Mcilravey, Manager of Market Research at Empire gives us his take on what’s to come in 2016.
As we look ahead to what trends to look out for in the 2016 Southern Ontario housing market, let’s start with a quick look back at what happened in 2015. The overall market dynamic begins with demand; and demand is still strong and growing. This is driven by a range of factors, from continued immigration to Southern Ontario, as well as doubling of households as millennials move out of their parent’s homes and start to form their own households.
The Toronto Real Estate Board reported a record year for TREB MLS home sales in the GTA, with 101,299 total resales, an increase of 9% over 2014. Strong annual sales increases were also reported for all major home types in 2015. However, despite the record setting totals, demand potential is still dampened by a shortage of listings supply. “If the market had benefitted from more listings, the 2015 sales total would have been greater. As it stands, we begin the year with a substantial amount of pent-up demand”, said TREB President Mark McLean in the December 2015 TREB Market Watch publication.
The shortage of listings really starts with the eroding supply situation for Low Rise housing in the new sales housing market. According to RealNet Canada, total Low Rise Inventory across the GTA declined by 36% from December 2014 (6,632 units) to December 2015 (4,216 units). In December 2013 there was 7,932 units of Low Rise inventory. So just over two years ago there was almost twice as much Low Rise inventory available as there is today; enough to be considered a shortage.
In comparison, just 10 years ago in 2005, the year-end Low Rise available inventory total was 16,546 units. In 2006 it was 17,529 units. Low Rise sales in these two years were 24,352 and 22,173; the ratio of inventory/sales was 0.79 in 2005, 0.67 in 2006 and is 0.25 as of the end of 2015. So in relative terms, the new Low Rise supply/demand situation is three times tighter at the end of 2015 than it was at the end of 2005. This has caused the total number of Low Rise sales to decline in absolute terms, as there is insufficient supply to serve demand. The same circumstance is true of, and remains one of the main drivers of the supply-challenged Low Rise resale market.
This shortage of Low Rise housing supply at the beginning of the pipeline, coupled with continued strong overall housing demand, has caused the price of single detached housing to skyrocket (12% year over year increase across the GTA), while increases in medium density have been strong (9% for townhouses and 15% for semis) and apartments have been more moderate, but still growing above inflation (4.2% increase in 2015).
The on-going limits on Low Rise and more recently, new medium density supply across the GTA, will continue to cause Low Rise prices to escalate above condo apartments escalation rates. Given limits to affordability, however, the rate of increase will slow in 2016, likely to 7-8% from the current 12%. Even with this considered, the absolute price gap between Low Rise and High Rise forms will remain wide and will likely continue to diverge in 2016.
This growing price differential between Low Rise and High Rise has created two main trends in demand.
Demand “growing upwards” has been a hard notion for many market observers and everyday home buyers to accept as a real and enduring reality. Popular media has been flooded for years about a looming condo crash, because the number of units being delivered was and remains much higher than “historical averages”. What tends to be forgotten is that Low Rise completions were also below historical averages and by a much wider margin than condo apartments were above these averages. Coupled with overall housing demand increasing, more people have therefore been pushed “up” to satisfy demand.
This is why record condo completions were not a looming market problem for the GTA. In fact, they have been the supply solution for the market and many people. As a result, this purported crash never did materialize. Moreover, all recent market indications suggest a continued tightening of the condo apartment market is occurring, despite record high numbers of new completions and an expanding resale market base.
This will continue to occur through most of 2016, as new completions will not be as high as in 2015 and demand for condo apartment ownerships and rentals is steady and growing in some areas. This will allow condo apartment price growth to be maintained and perhaps strengthened in some areas in 2016, but should still remain in the range of 5% increase for 2016. If you are looking for a new condo, now is the time to act. It’s more likely than ever the unit you have your eye on will be sold very soon and next year, it will certainly be priced higher.
The high cost of Low Rise housing in the GTA will also continue to result in demand being “pushed out” to areas outside the GTA in the GGH, where low density land supply is greater. Even in many of these areas, land supply is becoming tight and prices are increasing however.
Municipalities such as Guelph, Kitchener, Cambridge and more recently, Hamilton, are all witnessing on going declines or shortages in single family lots. Supply has tightened and people moving into these areas as a price alternative to the GTA has increased demand. As a result, prices have also increased in these market areas. Perhaps more importantly, choice is relatively limited even in all of these outside GTA areas. Even if the price isn’t the issue, it’s difficult to find what you want due to short supply in so many market areas. As a result, each of these smaller cities is becoming more urbanized, with increased development and record levels of demand for condo apartments.
In 2016 and beyond, increasing numbers of people in search of Low Rise housing will continue to “move out”, but to areas most people had previously paid scant attention to. Niagara Falls is a prime example, where Empire has sold over 600 houses at its Imagine community. The current phase there is sold out, but keep watching for future phases in later 2016 and 2017. The Thorold and Fonthill areas of Niagara Region also contain large amounts of future residential land that are amongst the largest future sources of low density lots in the GGH.
A current example is Empire Avalon, located in Caledonia, 15 minutes south of Hamilton Airport. This community has already had strong sales success in Phase 1 and with approximately 3000 lots proposed, it will be one of the prime source areas for new single family lots in the west GGH over the coming years. As Greater Hamilton continues to deplete its low density land over the coming years, look for increasing growth in Caledonia at Empire Avalon. Better still, consider being part of it!
Overall, what you will see in 2016 is a continued tight and high priced single family market in the GTA, but with increasing tightness in the condo apartment market compared to 2015. The on-going push of demand for ground oriented housing out of the GTA to the GGH will continue to intensify, but choices are becoming limited even in some of these markets. The availability of land in places such as Niagara Region, Haldimand and Brant Counties will cause pockets in all of these areas to witness growth in demand over 2016 and beyond.
The push outwards won’t likely be limited to demand for ground oriented housing. Look for more development of two and three bedroom condo apartments in the near suburban areas in 2016 and beyond. The growth of families amongst millennials currently living in downtown condos will create a market of people wanting to continue living a condo lifestyle but requiring more space. However, they will face choice and affordability constraints downtown. More suburban locations allow the lower land cost to build more affordable and larger suites. However, the key is “near suburb” locations with urban transit access on GO Train lines, express bus routes or emerging LRT lines, to provide a combination of affordability, more space and transit access.
A slice of what to expect in the future, is actually emerging in the present. The Kitchener LRT is currently under construction; connecting a substantial part of downtown Kitchener to the Kitchener GO Station. In turn this connects via GO Train to downtown Toronto and stops in between, including Brampton. Imagine a young buyer with their first condo on King St. in Kitchener, walking to the LRT, taking it to the GO Train and being at a job in downtown Brampton in less than an hour, or downtown Toronto inside 90 minutes without touching a car? That’s a different kind of buyer that will increasingly become the norm as the GTA and the GGH continue to become more urbanized over the coming years. Maybe it’s you. Only time will tell.
Gary Mcilravey is Manager, Market Research at Empire Communities. Gary has over 25 years of experience working in the Toronto and across the southern Ontario housing market. Prior to joining Empire, Gary’s experience includes many years as Vice-President of a leading Toronto research and consulting firm, then principal of his own research firm, followed by over 15 years working in the “front lines”, as the marketing and sales director with three different building corporations, spanning both the high rise and low rise sectors. Gary’s rare combination of substantial academic and business research experience, combined with ground level experience as a marketer of many new home communities, from start to completion, provides him with a unique and long-term perspective on the southern Ontario housing market.